Director Weekly  Hopes that the UK economy is turning a corner are beginning to grow as employers make the most of the hand they’ve been dealt by policymakers

January’s Flash UK PMI data from S&P Global, for instance, highlights the “strongest upturn in UK private sector business activity since April 2024.”

The IoD Director Economic Confidence Index for January, to be published next week, will shed further light on directors’ outlook. The early signs are that it will confirm an uptick in optimism.

If so, that will be welcome news for everyone. Yet whatever the extent of the improvement, we could surely be doing better – because even after some positive announcements in the last fortnight, it’s impossible to conclude that the government is doing all it could to promote growth.

Take the announcement of business rates relief for British pubs and live music venues. It offers them much-needed breathing room – yet ultimately, it only softens the blow. It doesn’t reverse the increase, let alone offer a cut. In the grand scheme of things it’s a pretty minor gesture.

It’s illustrative of why constructing a broader narrative about the direction of travel for business policy remains difficult. Some solid, pro-business decisions are being taken, yet they are outweighed by much bigger tax and regulation decisions.

This month, we’ve seen a U-turn on digital ID for foreign workers, and the planned Audit Bill being dropped in the name of deregulation.

The second update on the Industrial Strategy was welcome, with £9bn being directed to the IS-8 frontier technologies and industries. There were also positive announcements on Northern Powerhouse Rail, the International Education Strategy, and the launch of the AI Skills Boost by DSIT and Skills England – with the IoD as a Strategic Partner.

Yet all this pales in the face of rising employment costs. Employers face increases in the National Minimum and Living Wages in Spring, the roll-out of certain provisions of the Employment Rights Act in April and October, and the reduction in the writing down allowance, among other measures. With the cost of employment rising sharply, it’s no wonder that hiring and investment have faltered.

Policy, in short, remains in a mess.

That’s why, talking to IoD members, the mood remains low-key. There’s no rushing return of animal spirits; just a sense of quiet relief. Having emerged from the crippling uncertainty of the Budget period, businesses are getting on with making the best of the hand they’ve been dealt. After increased the fiscal headroom in the Budget, the Treasury now assures us that the Spring Statement will be relatively small beer; it should hold no nasty surprises. A period of comparative steadiness will be very welcome.

A word of caution, however. We saw confidence tick upwards in early 2025, too. Yet that evaporated. Any nascent recovery in optimism will be fragile; adverse government policy decisions (or external shocks) could easily knock employers back on their heels.

Let’s hope that the data beginning to emerge for January marks a genuine turning point.

For more on the current policy and economic landscape, IoD members can access the The Director’s Quarterly Update January 2026 here.